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This 10 story high Chinese
cargo ship has a
270,000 square foot deck and can
cross the Pacific in 4 days. |
The latest figures are
in and they are
staggering.
The Census reports that the trade deficit
with China has reached the unprecedented
figure of $273 billion. This figure dwarfs
the $40 to $50 billion dollar trade deficit
the US had with Japan in the 1980's. It is
the largest trade deficit that any country
has ever had with another country. The
average American spends nearly $400 per
month on Chinese products.
Our trade deficit with China was a meager $6
billion in 1989. That followed with a big
scare about jobs going to Mexico due to
cheap labor. Few predicted that China would
take on that role and keep it for so long
through communistic control of its currency
value.
What do I mean by communistic control? China
is a communist country. Free countries in
the same circumstance would have watched the
value of its currency go up, and thereby
stem the demand for its products due to the
higher cost required to produce them. It's a
simple law of supply and demand and is one
of the natural checks and balances of a free
market system. China, however, is a
communist country playing in a free market
system so they don't follow the same rules.
One way that China keeps its currency value
lower than the dollar is that whenever the
Chinese yuan begins to rise in value against
the dollar, China buys up U.S. Treasuries.
This has been done so often, they are now
the largest lender to the U.S. Government.
As of November 2010, China owned 32% of all
U.S. Treasuries, which amounts to $895
billion.
This practice gives China a certain amount
of power over the United States because as
the old saying goes, "the borrower becomes
the slave of the lender." At any time, China
could choose to demand payment on the loans.
With China working to keep their own
currency value low against the dollar, U.S.
businesses have to either use the Chinese to
manufacture products, or face the real
danger of being forced to go out of
business. This translates to a loss of
American jobs either way. Should we wonder
why our unemployment rate is going up?
Recently, the ridiculously massive Federal
budget deficit of over $1.26 trillion has
been in the news. This means that the U.S.
Government is spending $1.26 trillion more
money than it has to spend. The total amount
of revenue coming into the Federal budge is
$2.57 trillion, so about a third of its
budget will use borrowed funds to finance
its expenses.
Will this trend continue? Currently, they
are forecasting an annual deficit of $700
billion for the next 9 years. Of course,
last year their forecast for the 2011 budget
deficit was only $500 billion so don't
expect the forecast to be as rosy as stated.
So where does it get all this money that it
doesn't have? From issuing Treasury bonds.
China will be more than happy to buy them.
It doesn't look like this trend is going to
change anytime soon.
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